Tax returns and pension investments: how does that work exactly?

You deposit money for your pension and get a tax benefit, but how do you enter that when you file your tax return? And how much do you actually get back? Filing taxes while you're investing in retirement doesn't have to be complicated if you know what to look out for.

‍

Tax advantages with your deposit

Pension investments under the third pillar are tax deductible. Your deposit reduces your taxable income, so you get money back via your return. Exactly how much depends on your tax bracket. In the first bracket, the advantage is roughly 36 to 37 percent, in the highest bracket up to 49.5 percent.

‍

A calculation example. If you deposit 10,000 euros within your annual space, you will receive between 3,600 and 4,950 euros back from the tax authorities. The higher your income, the greater the benefit.

‍

How do you include pension investments in your tax return?

You enter your annuity deposit in “Expenses for income provisions” in your tax return. The tax authorities automatically deduct the benefit from your income tax. Your annual space is calculated based on your previous year's income.

‍

With Vive, you get an annual overview that you can use immediately for your declaration. No hassle with figuring out what amount to enter.

‍

No wealth tax during the build-up

An important advantage of pension investing is that your assets do not fall into box 3. So you do not pay wealth tax on the accumulated capital, even if it grows considerably over the years. This makes pension investing more fiscally attractive than free investing, especially in the long term.

‍

Pension upon payment tax return

When it comes to benefits, the principle is reversed. You have had a tax advantage when you made a deposit, now you pay tax on the benefits. These benefits are taxed as income in box 1. The good news? Many people fall into a lower tax bracket after retirement. Your income is lower and you no longer pay AOW contributions after your state pension age. As a result, the effective tax rate is often lower than during your working years. You shift tax from now to later. You often deduct at a higher rate and pay later at a lower rate.

‍

Common mistakes when declaring

Please note that you only deduct the amount within your annual space and reservation space. Inputs outside this space are not deductible, but will later be taxed upon payment. You want to prevent that.

‍

Another pitfall is early recording. If you buy off your pension investments before you can, you pay income tax on the full amount plus revision interest of up to 20 percent. The tax benefit you previously received is then actually reversed.

‍

In the end, a lot of tax benefits remain unused. Only 5 percent of employees and 11 percent of self-employed people actively use pension investments. On average, the Dutch only use about a third of their annual space. A large part of the fiscal space thus remains unused.

‍

Pension investments and your return via Vive

At Vive, you always have insight into your investment and the associated tax benefit. You automatically get an annual overview for your return and see exactly how much fiscal space you have left. This way, you can make optimal use of your annual space without making mistakes.

‍

Do you want to know how much you can invest in a tax advantageous way? Check out the annual space calculator or read more about pension investing to learn how to start building.

‍